Yet another upgrade ...  The regional growth prospects continue to improve, according to this month’s survey.  The projected average growth rate for the seven surveyed countries gained 0.2% over the reading 30 days ago to 4.1% GDP growth.  The improved prospects follow major upgrades in the regions economic heavyweights, Brazil and Mexico.  Argentina and Peru were also revised upward whereas the outlook for Colombia and Venezuela remain at the levels from last month’s edition.  The only country that suffered a downgrade was Chile.  

… led by Brazil and Mexico.  In Brazil, the favourable interest rate environment paves the way for a stronger than expected recovery, supported by favourable export conditions and growing domestic demand.  In Mexico, panellists keep adjusting their forecasts to the ever-improving economic data.  The story sounds almost too good to be true.  Exports grow at high double-digit rates and strong investment provides for the necessary capacity to accommodate the growing domestic demand.  Meanwhile, unemployment continues to converge on historic lows and the Central Bank is making inways into driving down inflation to pre-Peso Crisis levels, despite the booming economy.  Projections for Argentina inched upward 0.1% amid stronger than expected industrial production data.  The upgrade notwithstanding, Argentina remains the slowest growing economy within the region in 2000.  In Peru, panellists revised their GDP forecast upward by 0.2% to 4.9%, in the wake of better than expected Q2 GDP data.  Chile, even though it suffered a further downward revision, remains the second fastest expanding economy in the region this year with healthy 5.8% growth.  However, the business community is anything but cheerful and attributes the private sector’s continued cautious attitude towards new investments to the uncertainty generated by the government’s desire to reform the country’s labour code. 

Strong exports.  Exports remain a key driver of economic growth in the region.  With the exception of Colombia, all surveyed economies will enjoy double-digit export growth this year.  Venezuela leads the pack with exports growing by more than one third this year, owing to the ongoing oil price bonanza.  The average price for the Venezuelan mix now stands at US$ 31.6 per barrel, almost four times the level than in February 1998 and double the average in 1999.  Mexico follows suit with an estimated 18.6% increase in exports, which further fosters Mexico’s role as the region’s export champion.  In 2000, Mexico will export US$ 162 billion, 10% more than the other six surveyed economies combined.  Long-term projections indicate that owing to Mexico’s unique position as a member of NAFTA, the country will continue to outgrow its neighbours in exports and will export some 50% more than the other six countries surveyed by 2005. 

Fiscal deficits coming down.  In addition to successful inflation containment – the GDP-weighted regional average dropped another 0.1% to 6.1% in 2000 -- Latin American governments are also managing to lower fiscal deficits.  Excessive government spending has often been at the root of economic crises that have shaken the region in the past and only Venezuela appears to be continuing in the mould.  The average fiscal deficit has dropped from 4.2% in 1998 to 3.5% in 1999 and in this month’s Consensus Forecast is projected to reach 2.1% in 2000.  The trend not only reflects higher tax takes in the wake of recovering economies but also, and more importantly in the long haul, the anchoring of sounder fiscal policies.  In the long run, this should pay off with lower real interest rates and improved growth prospects.

Note:  The above text is an abridged version of the LatinFocus Consensus Forecast briefing and includes information available up to 10 September.  For more details please click here.

For five-year forecasts, please click here.